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Case Study 2: American Water Keeps Data Flowing

American Water, founded in 1886, is the largest public water utility in the United States. Headquartered in Voorhees, N.J., the company employs more than 7,000 dedicated professionals who provide drinking water, wastewater and other related services to approximately 16 million people in 35 states, as well as Ontario and Manitoba, Canada. Most of American Water's services support locally managed utility subsidiaries that are regulated by the U.S. state in which each operates as well as the federal government. American Water also owns subsidiaries that manage municipal drinking water and wastewater systems under contract and others that supply businesses and residential communities with water management products and services.

Until recently, American water's systems and business, processes were much localized, and many of these processes were manual. Over time, this information environment became increasingly difficult to manage. Many systems were not integrated, so that running any type of report that had to provide information about more than one region was a heavily manual process. Data had to be extracted from the systems supporting each region and then combined manually to create the desired output. When the company was preparing to hold an initial public offering of its stock in 2006, its software systems could not handle the required regulatory controls, so roughly 80 percent of this work had to be performed manually. It was close to a nightmare.

Management wanted to change the company from a decentralized group of independent regional businesses into a more centralized organization with standard company-wide business processes and enterprise-wide reporting. The first step toward achieving this goal was to implement an enterprise resource planning (ERP) system designed to replace disparate systems with a single integrated software platform. The company selected SAP as its ERP system vendor.

An important step of this project was to migrate the data from American Water's old systems to the new platform. The company's data resided in many different systems in various formats. Each regional business maintained some of its own data in its own systems, and a portion of these data was redundant and inconsistent. For example, there were duplicate pieces of materials master data because a material might be called one thing in the company's Missouri operation and another in its New Jersey business. These names had to be standardized so that every business unit used the same name for a piece of data. American Water's business users had to buy into this new company-wide view of data.

Data migration entails much more than just transferring data between old and new systems. Business users need to know that data are not just a responsibility of the information systems department: the business "owns" the data. Business needs determine the rules and standards for managing the data. Therefore, it is up to business users to inventory and review all the pieces of data in their systems to determine precisely which pieces of data from the old system will be used in the new system and which data do not need to be brought over. The data also need to be reviewed to make sure they are accurate and consistent and that redundant data are eliminated.

Most likely some type of data cleansing will be required. For example, American Water had data on more than 70,000 vendors in its vendor master data file. Andrew Clarkson, American Water's Business Intelligence Lead, asked business users to define an active vendor and to use that definition to identify which data to migrate. He also worked with various functional groups to standardize how to present address data.

One of the objectives of American Water's data management work was to support an enterprise wide business intelligence program based on a single view of the business. An analytical system and data warehouse would be able to combine data from the SAP ERP System with data from other sources, including new customer information and enterprise asset management systems. That meant that American Water's business users had to of think about the kinds of reports they wanted. The company had originally planned to have the system provide 200 reports, but later reduced that number by half. Business users were trained to generate these reports and customize them. Most financial users initially tried to create their reports using Microsoft Excel spreadsheet software. Over time, however, they learned to do the same thing using SAP Business Objects Web Intelligence tools that came with the system. SAP Business Objects Web Intelligence is a set of tools that enables business users to view, sort, and analyze business intelligence data. It includes tools for generating queries, reports and interactive dashboards.

At present, American Water is focusing on promoting the idea that data must be "clean" to be effective and has poured an incredible amount of effort into its data cleansing workidentifying incomplete, incorrect, inaccurate, and irrelevant pieces of data and then replacing, modifying, or deleting the "dirty" data. According to Clarkson, just as water treatment plants have measurements and meters to check water quality as its being treated, data management needs to ensure the quality of data at every step to make sure the final product will be genuinely useful for the company.

Case Study 2: American Water Keeps Data Flowing

How did implementing a data warehouse help American Water move toward a more centralized organization? I need new and unique answers, please.

Give some examples of problems that would have occurred at American Water if its data were not "clean"? I need new and unique answers, please.

How did American Water's data warehouse improve operations and management decision making?

The random variable Y is defined by: N Y =>X; 1=1 where the X,'s are independent Bin(n, p) random variables and N is a Poisson random variable, independent of the X; 's, with mean 1. (i) Prove from first principles that the moment generating function of Y is given by: My(1) = exp a[(q + pe')"-1] [4] (ii) Hence derive expressions for the mean and variance of Y . [4] [Total 8]1. Duration and Convexity Your research department reports continuously compounded interest rates as Maturity [Years] Interest Rate (96] 0.5 1.00 1.0 1.50 1.5 2.00 2.0 2.00 (3} Use these rates to compute the prices le0,1} and No.2) of one- and taro-year zero coupon bonds, and the price .0403] of a two-year, 3% coupon bond. Coupons are paid semi- annually, and the face value of all bonds is 100. (b) Obtain the coupon bond's duration and convexity. (cl Suppose that the monthly changes in the interest rates have a mean of zero and a standard deviation of 0.5%. Obtain the monthly 95% Value at Risk and Expected Shortfall on the coupon bond. (d) Construct a hedge portfolio of 1 coupon bond and k one-year zero coupon bonds that has zero duration. What is the value of it? What is the convexity of the hedge portfolio? is) Construct a hedge portfolio of 1 coupon bond, and k1 one-year zero coupon bonds and k2 two-year zero coupon bonds, that has zero duration and convexity. What are the values of in and k2? (f) Suppose that the yield curve shifts upward parallelly with dr = 1%. Recalculate P(0,2), le0,1) and Pz[0,2] and use this to calculate the change in the values of the hedge portfolios constructed in [cl] and {e}. Comment on the result. 11. Consider a small open economy with fixed prices and wages. Consumption de- mand depends positively on disposable income, investment demand depends negatively on the domestic interest rate i. Government spending and taxes are exogenous. Net exports NX are negatively related to income Y and the nominal exchange rate E, where E is the foreign price of domestic currency. The demand for money M /P = L(Y, /) is positively related to income Y and nega tively related to the interest rate i. The money supply M is exogenous. Capital mobility is perfect, and balance of payments equilibrium requires / = /", where i' is the foreign interest rate, which is positive to begin with. Throughout this question, the government has a flexible exchange rate policy. (a) [2 marks] Suppose the government wants to boost GDP and first considers increasing the money supply. Analyse the effects of this using the IS-LM-BP diagram. Does monetary policy succeed in raising GDP? (b) [2 marks] After the policy change in part (a), the government considers cut- ting taxes. Analyse the effects of this using the IS-LM-BP diagram. Does fiscal policy succeed in raising GDP? Money demand MJ/P = L(Y./) becomes perfectly interest elastic at / = 0. (c) [4 marks] Explain what shape the LM curve takes when i = 0 and sketch the LM curve, considering points where i = 0 as well as those with / > 0. Suppose there is a global recession. Central banks around the world cut interest rates to zero. (d) [2 marks] Analyse the effects of i" falling to zero using the IS-LM-BP diagram, (e) [3 marks] Do your conclusions from part (a) still apply if the government de- cides to increase the money supply? Carefully explain your answer, showing the effects of a larger money supply on the LM curve obtained in part (c). (f) [2 marks] Following on from the money supply increase in part (e), explain whether a tax cut would succeed in boosting GDP. Does your conclusion from part (b) still hold? Now suppose that capital flows depend on the difference between the domes- tic interest rate / and the expected return on foreign bonds adjusted for expected changes in the exchange rate, that is, i" -(AE/E), where AE denotes the expected change in the nominal exchange rate. Capital mobility is perfect, so the BP line remains horizontal, but now has height i" -(AE/E). In external equilibrium, un- covered interest parity (UIP) holds: i = i -(AE/E). (g) [3 marks] If the government convinced investors that it would pursue policies leading to a depreciation of the value of its currency in the future, what would be the effect on the BP line? Explain what happens to GDP (h) [2 marks] If both / and i were expected to remain at zero in the future, would this affect the credibility of the policy from part (g)? Briefly explain